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‘Banks’ involvement key to climate change reform’

The financial sector holds a “unique” position to advance reforms in climate preparedness and sustainability, especially in the post-pandemic recovery, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

Speaking in a recent webinar on climate risk, Diokno said banks and regulators can no longer afford to ignore climate change or sustainability issues as a governance priority.

The BSP chief also lauded local banks’ recent efforts to issue so-called green bonds to include environmental agenda into their portfolio.

“Green bonds” are financial instruments issued by companies to investors, whose proceeds are used to finance projects that bring environmental benefits.

“The banks’ participation in the green or sustainable finance market can send a powerful message of sustainability to the business community thereby generating greater momentum in this space,” Diokno said. “By deciding to finance sustainable projects, you can create more value to the company’s stakeholders while preserving the environment and humanity,” he added.

Considerably ahead

Diokno said that while large banks are considerably ahead in being involved in sustainability investment vehicles, he is confident other financial institutions will follow soon, especially with the heightened social awareness brought by the global pandemic.

“The current Covid-19 pandemic offers a window of opportunity for reshaping the industry’s future. Let us not put this once in a lifetime crisis to waste. Let us learn from it and build a climate resilient, green and sustainable economy,” he said.

Two green bonds were executed last year by the Philippine branch of the The HongKong and Shanghai Banking Corp. Ltd.  The bank served as sole global coordinator in the $410-million Green Bond by AC Energy Philippines Inc. It was also the joint lead manager in the P15 billion green bonds issued by the Rizal Commercial Banking Corp. In 2018, BDO Unibank Inc. issued its own $150-million Green Bond.

Also, in October last year, the BSP announced its decision to invest in green bonds launched by the Bank for International Settlements.

Proactively engage

The BSP will continue to proactively engage banks to ensure that sustainability principles are incorporated into their strategy resenting exercise in view of the ongoing pandemic,” Diokno said.

Just last month, Moody’s Investors Service published its assessment of how environmental, social and governance risks inform their credit analysis of the Philippines.

The credit watcher said environmental considerations are material to the Philippines’s credit profile, given the high incidence of climate-related disasters, as well as the relatively large, albeit declining, share of the labor force employed by the agricultural sector.

“Drought conditions associated with El Niño have led to supply-side disruptions to agricultural output in recent years, contributing to inflation volatility and dampening household purchasing power,” Moody’s said.

“Overall, the severity and frequency of extreme weather events can increase the Philippines’s GDP [gross domestic product] growth volatility, as well as public expenditure due to costs associated with reconstruction or rehabilitation,” it added.

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